Amazon’s disruptive timing

Moments before CEO Jeff Bezos took the stage in Santa Monica, Calif., Thursday to unveil a new lineup of Kindle e-readers and Kindle Fire tablets, the news broke that the federal district court judge in Manhattan overseeing the Justice Department’s ebook price-fixing suit against Apple and the five major publishers, Denise L. Cote, had approved the settlement agreement negotiated by the government and three of the charged publishers, rejecting the vigorous complaints lodged against it by Apple, the American Booksellers Association, and a long list of others.

Under the court-approved agreement, the settling publishers – Hachette Book Group, Simon & Schuster and HarperCollins — will now have to terminate their e-book licensing contracts with Apple by September 13 and refrain from entering into any contracts that restrict a retailer’s ability to determine e-book prices for at least two years. Apple and two of the publishers — Penguin and Macmillan — continue to fight the government charges.

The synchronous timing of Judge Cote’s ruling and the Amazon news conference was obviously coincidental. But it couldn’t have been more fitting had Bezos been able to arrange it all himself.

As I’ve argued here before, the e-book price-fixing case, at bottom, is more about the disruptive effects of digital technology on the publishing business than about pricing as such. The whole point of the alleged conspiracy between Apple and the publishers to impose agency pricing on e-books, in the government’s view, was to preserve the publishers’ position atop the industry, including their control over which authors get published and how the revenue those authors generate gets divided.

As spelled out in the government’s original complaint:

The Publisher Defendants believed the low prices for newly released and bestselling e-books were disrupting the industry. The Amazon-led $9.99 retail price point for the most popular e-books trouble the Publisher Defendants because, at $9.99, most of these ebook titles were priced substantially lower than hardcover versions of the same title. The Publisher Defendants were concerned these lower-ebook prices would lead the “deflation” of hardcover book prices, with accompanying declining revenues for publishers [snip].

The Publisher Defendants also feared that the $9.99 price point would make e-books so popular that digital publishers could achieve sufficient scale to challenge the major incumbent publishers’ basic business model. The Publisher Defendants were especially concerned that Amazon was well positioned to enter the digital publishing business and thereby supplant publishers as intermediaries between authors and publishers [emphasis mine].

Sure enough, on Thursday Bezos flourished Amazon’s ambition to do just that. In addition to unveiling the new Kindle “Paperwhite” front-lit e-reader and a price cut on the basic Kindle to just $69, Bezos spent a good deal of time at the news conference, as GigaOM’s Laura Hazard Owen noted in her live-blog of the event,  highlighting the Amazon Direct self-publishing platform.

He took time out to show videos profiling a number of successful Amazon Direct authors and salted the auditorium with several more, demanding a “huge round of applause” for them from the assembled journalists.

Bezos also introduced a new program (modeled on 19th Century publishing practices) called Kindle Serials, that lets readers subscribe to novels that will be published in serial installments. Each serial novel will be priced at $1.99, with episodes updating automatically as they’re released. “Most intriguingly for me,” Bezos noted, “because we have the Internet,” authors will be able to adapt later episodes based on reader feedback and reaction to earlier episodes, making the process far more collaborative between authors and readers than with traditional publishing.

Without scale, those sorts of innovative publishing efforts might well remain gimmicks, posing little long-term threat traditional publishers’ control of the market and their access to the most popular authors. With enough e-readers in enough consumers’ hands, however, that sort of open, collaborative publishing platform might just achieve enough scale to be truly disruptive.

One good way to get enough e-readers into consumers’ hands to achieve that scale is to ensure that ebooks are as affordable as possible, making the investment in the device an acceptable trade-off. That’s precisely the dynamic the publishers were trying to shut down by fixing e-book prices.

On Thursday, Amazon and a court in New York reminded them what’s at stake.


Question of the week

Should Apple continue to fight the price-fixing charges brought against it by the government?